Going gets tough, so Bush tries socialism

Originally posted by Lucid Lunacy

Originally posted by Gateway
It's socialism when it is the Public's money, even if you say it's a loan.

If that's not a definition of socialism, then I don't know what is.

So then the taxes we have always payed in the States is Socialism?

Well taxes are never a good thing, because the State has no idea how to best allocate resources. I would call taxes, more like theft.

The actual socialism comes into play when the STATE turns around and purchases private entities. The so-called loans are more like corporatism or subsidies. Still, not a good thing though, and certainly not something you do if you believe in Capitalism.


[edit on 18-9-2008 by Gateway]

Originally posted by Gateway
That's funny, is the same argument was said about Bear and Sterns and how if they failed then the Market would come tumbling down. Well, now we have more institutions failing. You are making the case that government is saving the Market from itself, when in actuality the Government has caused these malinvestments in the first place by causing the below market rates of interests after 9/11.

Oh goodey, is this where we get to play the blame game? Lets all bash the government and refuse it's help because it play A FACTOR in the position we are in now.(it is not the cause, as there were definately multiple causes to the situation we are in. They are complex, and to dumb it down to "it is the Feds fault for keeping the rates below market" is an insult to every ATSers intelligence.)

We are at the beginning of Recession, not the end of it. There are more institutions that will fail, throwing money and making everyone else poorer will not solve the problem of having assets, themselves incorrectly priced. They have been inflated, for several years, because of easy credit, the price must come down to meet demand so the market can clear. All that the government is doing now is propping up these assets and not allowing for prices to come down, they are only making the pain last longer, and making my and everyone else's standard of living worse off.

It has nothing to do with saving all the institutions all the time. It has to do with knowing when to step away, and when to step in. We didn't save Lehman Brothers, and that is because although it would be negative for the market, it wouldn't cause any potential wide spread damage like AIG was going to do because of the WAY it was going to collapse.

We didn't save AIG because it made us feel good. We did it because we could not allow them to go bankrupt. It simply was not in the best interest of our government, our economy, the world economy, the stockholders, and most importantly, the taxpayer who would have been most negatively impacted by the RESULTS of an AIG collapse.

No the world would still, turn. The Great Depression was not caused by the Stock Market Crashing. The Great Depression was caused by the Federal reserve first of all, by increasing the money supply in the 1920s and thereby causing a bubble in the Stock Market, and then decreasing the money supply after the Stock Market Crashed. Which tightened lending, causing a decrease, in investment which spurred the increased unemployment rate, while at the same time the Federal government propped up prices for certain goods, making things worse.

Who taught you that? I'm going to give you a very basic version of what actually happened for you, and if you don't believe me you can go get some books and read up on the subject.

In the 1920's, as you know, we went through an economic boom. A main factor for this was the fact that productivity increase around 30% while wages only increase 5-10%. What you have is a much higher productivity, and that produced a bigger profit for the company.

The problem? Down the road there became simply too much. The market was flooded. Many people were spending all there money on consumer products, and something like the bottom 84% of americans had no savings. What results? A massive indistribution of wealth.

The continuation of the market became remarkably dependent on two main things. One of them was reinvesting on the part of the rich to stimulate the market. The second was giving credit to people. They needed to stimulate sales for luxury items, so they gave out credit to increasingly more poor people so that they could "afford" to buy items on a flooded market.

What happens as a result? People stop having money to pay for new purchases because all their money is being spent to pay off previous purchases. So this was the first MAJOR factor in making the market fall that much harder. Giving people credit to purchase a market whos production was too high.

Now, a problem with the rich reinvesting too much is that it increases productivity in a market that is already flooded. That just makes the problem worse, so they promoted luxury spending. It didn't matter anyway though, as it would be the equivilant of you paying yourself for a dodge viper. The maldistribution of wealth had the top .1% with more money they could ever spend and the bottom half of the income bracket couldn't afford to pay for previous credit bills and make new purchases.

You know why it was so easy for automotive and radio to boom during the 1920's? Because credit was so easily avalible to invest in these company's since discount rates were kept lower than they should have been. This furthered the indistribution of wealth since so many people were buying these cars they didn't have the money for.

Now, it is definately worth mentioning that while automotive was booming, farmers and agriculutre was falling into alot of debt. During ww2 agriculutre was booming. When it ended though, government pretty much stopped the massive spending for food that they no longer needed to provide on such a mass scale. This led to the farmers having land they couldn't use and product they couldn't sell.

One of the biggest factors were speculation in the market. When the market boomed so fast, people stopped worrying about earnings and profit, and started investing on the sole idea that they would make a huge profit from rising stocks. This led to poor business investing. Later on this would prove to be its downfall. The massive speculative market let fear literally destroy the market. As soon as people became fearful and dropped their stock, the boom was over. Speculation really brought about the whole situation leading to black tuesday.

In a sense, with the indistribution of wealth, the market became a faith based one. Depending on the rich to be confident enough in the market to invest it in. When that faith/confidence was lost, the investing stopped. As a result, their spending on luxury items slowed down.

So now production starts to slow down. That means people are going to lose their jobs. People lose their jobs, they have to default because they can't make payments. What happens when you default on your car payments? They have to take it. This, in combination with a cease in credit purchases, lead product to further build up.

This situation was made worse when the government raised bigger trade barriers in 1930, causing foreign investors and buyers to stop buying. That just made the inability to sell product worse.

As for the Federal Reserve you are here blaming for putting liquidity into the market causing the great depression, well that is completely ridiculous. In fact, the OPPOSITE was true. The failure to act on behalf of the Federal Reserve bank is what cause the market crash.

The Bank of The United States crashed, fueling fear and speculative selling, which destroyed the market on the short term. That is EXACTLY why I have been so for the Fed saving AIG, because we would have faced a similiar situation if they didn't. We almost did anyway.

Also I don't know if you remember this, but the gold standard was still around back then, and the Fed has pretty much reached the limit of credit they could loan out with the gold standard. Many modern investors blame the Feds inaction of stopping major bankruptcy's which allowed fear to dominate the market.

Nope, and make no mistake about it. This entire operation by the FED is being spun as in the interest of the "public", but clearly it is not since this company made poor investment decisions. They and the stock holders were thrown a lifeline, while the average American will now have to pay more for groceries or other substances.

How is it in the public interest to have everyone (THAT'S 300 MILLION PEOPLE) being able to buy LESS than they did yesterday.

That logic is completely flawed. The company's owners are being outed, and the average american was thrown a lifeline by not having the market crash as a result of fear and speculation.

Again, the tax payers will make money off this situation so long as AIG lives up to its agreement. It is a solvent company, so it wont have a problem coming up with capital.

If you cannot understand how stopping AIG from going bankrupt helped everyone, then don't bother talking about economics.

I'm sure the stock holders of AIG, feel the same way as you do.

Anyone that knows anything about economics feels the same way I do. It is only people that have no idea of what kind of effects result from actions made in the market that are complaining.

Boy, I hate to tell you this, but if you believe that, then you've never been a capitalist to begin with, but a misguided mercantilst. First of all, this country has not been capitalist since the 1850s. Since then we have been slowly but surely moving into a corporatist and now command/ fascist-economy, where a few large industry have lobbied for regulation to minimize competition with the help of big government.

Well that is nice and all, but thats not what is going on. That is just your paranoid personality slipping through. Regulation is what has stopped monopolies from raping you and your way of life, not build them.

This whole problem wasn't caused by the private sector, it was caused by government intervention and distorting the capital markets, and now instead of trying to get the government's nose out of it, you propose FULL GOVERNMENT CONTROL?

Um, no, it wasn't. It was caused by speculation, greed which led to poor business choices, and an over relaxation of government regulation on the market during Bush's presidency, which led to the housing bubble.

If government just "butts out" this speculative market will destroy itself entirely.

That's part of the market having to correct itself. If the balance sheets currently claims that they hold a house that's worth 1 million dollars, but the current market dictates that the house is only 700 thousand than rather than have the company bury its head in the sand, I'd rather have them correct their balance sheet to accurately reflect the market, wouldn't you? The FED, is trying to prop us these inflated assets, that need to come down.

This speculative market cannot handle such a quick "correction". Such a correction would lead the government into massive termoil. We cannot allow businesses to crash so fast in a speculative market. Learn something about the great depression.

Do you know what makes the dollar weak? Its simple Macro economics do you know what an IS/LM model is? If you have the Supply of any good in this case "dollars" more than is demanded, then the Price for said good, in this case the dollar will fall. This is what is happening to our dollar, when the FED turns up the presses.

Yes and its all about balance. They aren't bailing out every company that goes bankrupt. What the Fed is doing is attempting to slow down a huge weigh falling from the sky. If they step out of the way and let it freefall, it will just crush you to a pulp. If the Fed can slow the downfall enough, we will merely suffer a recession.

The private sector doesn't have control of the money supply, that is sole controlled by the fed. And they are increasing the money supply, not decreasing it, to pay for all these bail-outs, since mom and pop don't have any more money to be taxed on.

Fiat currency works. You may not like it, but it works. It is necessary for the survival of this economy that the Fed do what is necessary. They couldn't increase the money supply during the great depression because of the gold standard, and as a result the economy collapsed.

You are blaming the actions of the Fed for the great depression, when it reality it was the inaction to blame them for. I am glad they are action this time around and learned from their mistakes.

Originally posted by Gateway
People also clamored to have more government intervention after the "CRASH" of '29 all they got was a prolonging of the crash and making it worse, the government gave them a 16 year recession called "The Great Depression".

Please, stop talking about the great depression. You are under this crazy idea that the Fed is to blame for its actions during the 1920's when it was their inaction and non-intervention that allowed it to crash.

The government back then tried to prop up prices, they saw the possibility of prices going down as a bad thing instead of a good thing. Prices need to come down in a recession so people can afford things, so that the recovery process can begin.

Yes prices do need to come down, but not so fast. It resulted in a freefall because the inaction of the Fed. The government raised tarriffs thinking it would boost purchases from US companies, thus helping the economy. It didn't. That has nothing to do with money supply or regulation on the market itself.

I am too, for protecting American interest, certainly more so than AIG stock or bond holders.

then you lack the knowledge to know how to do so because what you condone is exactly what caused the great depression. Allowing company's to freefall in bankruptcy, have the fed sit by, and let the speculative market fears destroy the market in the name of "free market". I'm sorry, but you just don't know what you are talking about.

First of all, let's be VERY clear with what this loan is. Why don't we, instead of bickering, look at what precisely the Fed said about it.

"The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to 85 billion dollars to the American International Group (AIG) under Section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.

"The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance.

"The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.

"The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to 85 billion dollars under the facility.

"The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm's assets. The US government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.

The government via the Fed with own 80% of AIG. Last I checked, if you own 80% of a company or corporation, then you CONTROL it. Let's make that clear.

Now, if all works out well, just like everything the Fed has said up until this point, then all will be well. AIG will sell off their assets over the next 2 years and will be able to repay the Fed - with interest. THe government could actually make money off of this deal.

There are two potential problems with this and one glaring problem.

The blatant problem is that, once again, the Fed is literally creating money out of thin air to pay this off - short term - which will have long term effects on the value of the dollar. This is a consistent problem among fiat currencies.

One potential problem is that what if, in this less than perfect economy, AIG is not able to get fair market value for its assets? Then the Fed, conveniently, still owns AIG and the tax payers have footed the bill.

Potential problem 2 is that this seriously harbors the Feds ability to bail out any more troubled institutions. This will become clear when the FDIC runs out of money and the Fed will be forced to bail other banks out like WAMU or Wachovia.

Grimreaper seems to assume that all of this will go off without a hitch. I mean hey, the market is up 200 points today and we can all put this behind us...right?


[edit on 18-9-2008 by TruthWithin]

This thread should be required reading for all politicians and wannabe politicians.

Perhaps some will... we can only hope.

Originally posted by TruthWithin
The government via the Fed with own 80% of AIG. Last I checked, if you own 80% of a company or corporation, then you CONTROL it. Let's make that clear.

Ok now lets take a look at the form they are taking equity stake in the company.

online.wsj.com...

The U.S. negotiators drove a hard bargain. Under terms hammered out Tuesday night, the Fed will lend up to $85 billion to AIG, and the U.S. government will effectively get a 79.9% equity stake in the insurer in the form of warrants called equity participation notes. The two-year loan will carry an interest rate of Libor plus 8.5 percentage points. (Libor, the London interbank offered rate, is a common short-term lending benchmark.)

Bold added by me. Do some research so you can understand what this actually means.

Now, if all works out well, just like everything the Fed has said up until this point

, then all will be well. AIG will sell off their assets over the next 2 years and will be able to repay the Fed - with interest. THe government could actually make money off of this deal.

Pretty much.

The blatant problem is that, once again, the Fed is literally creating money out of thin air to pay this off - short term - which will have long term effects on the value of the dollar. This is a consistent problem among fiat currencies.

actually, it is one of the key reasons fiat currency is so successful and allows it to hold advantage over gold standard systems. Yes, it would have long term effects of the dollar, if the money wasn't going to be repaid and there was no plan to ever take money back out of the market.

AIG has the assets to sell for capital to pay us back. It isn't hard to understand. In due time, the money in the system will be pulled out.

One potential problem is that what if, in this less than perfect economy, AIG is not able to get fair market value for its assets? Then the Fed, conveniently, still owns AIG and the tax payers have footed the bill.

Um, no...not even close. If AIG can't raise the capital, the fed executes its warrants and takes control, getting our loan back in full. This deal is made so the taxpayers don't lose their money. I don't understand why this is so difficult to understand.

Potential problem 2 is that this seriously harbors the Feds ability to bail out any more troubled institutions. This will become clear when the FDIC runs out of money and the Fed will be forced to bail other banks out like WAMU or Wachovia.

You must not fully grasp the fact this was a situational save, not a general policy change. If WaMu starts to tank in the coming weeks, they won't get saved. Lehman Brothers didn't get saved, and two days ago, the fed flat out refused to aid AIG. The situation changed and it became necessary to avoid the next great depression.

Make no mistake, if AIG went bankrupt because the fed failed to act, it would have been THE EXACT same situation of 1929 when the fed did not act to save The Bank of the United States, letting the market spiral into a selling frenzy of fear.

Grimreaper seems to assume that all of this will go off without a hitch. I mean hey, the market is up 200 points today and we can all put this behind us...right?

Because its made specifically to protect the taxpayer dollars.

Originally posted by grimreaper797

then you lack the knowledge to know how to do so because what you condone is exactly what caused the great depression. Allowing company's to freefall in bankruptcy, have the fed sit by, and let the speculative market fears destroy the market in the name of "free market". I'm sorry, but you just don't know what you are talking about.

This is how a freemarket works Im sorry but YOU dont know what your talking about. I see you know about business but your logic is flawed. If the taxpayers were going to be a backstop for all of these companies then their taxes need to be hiked plain and simple as that. We need to socialize the gains if we are going to socialize the losses which is exactly what you are advocating for. Once again you can put lipstick on a pig and word it anyway you want but it is socialism.

Originally posted by grimreaper797
Again, the tax payers will make money off this situation so long as AIG lives up to its agreement.

How will I make money from this situation? Is AIG going to cut me a check with interest? Do the math... if by taxpayers we are talking about everyone who files a federal return (the ones who will be "loaning" this money to AIG), then that $85 billion amounts to roughly $700 per taxpayer, on average. Throw on top of that $100 billion each for Fannie and Freddie, and it is $2375/taxpayer. We will never "make money" from these bailouts. We are simply allowing the problems to exist longer, and prolonging the life of the bigger problem that is the Fed.

Why should I trust AIG to live up to its agreement anyway? They weren't able to live up to their obligations to their shareholders without being bailed out by taxpayers.

When big banks are allowed to take risks where if they lose, the public is forced to front their loss, then that is socialism. This current policy encourages irresponsible lending and such, because, after all, the big banks have nothing to lose, and everything to gain when they are insured by the American taxpayer!

reply to post by evilod


No they wont cut you a check they will use it for their continued big government spending including the nanny state, the police state, the military world police state, and other wasteful spending. The taxpayer will not see a dime or not a dime will go to pay down or balance the budget.

reply to post by grimreaper797


That's great, and I do appreciate your condescending tone, but all of this STILL depends on AIG not going into default.

They (AIG) have over a trillion dollars in assets, and in a normal economy where other institutions would be will to buy these assets we might be ok. But as you may or may not be aware, the economy is not in good shape and there may be few if any companies that are willing to purchase somewhat toxic assets.

I just wish GWB's detractors would make up their minds... is the man a fascist, a socialist, a despot, an oligarch, or is he simply a man that takes a lot of crap from groups of people who like to throw insulting titles at people in authority randomly, in hopes that something will stick just long enough to make their talking points worth discussing?

The state of our world today is one which places every government into a catch-22 situation on virtually every issue. We have become so polarized as a people that, regardless of what decision is made, 33% of the people will automatically act like asses loudly defending the decision made, 33% will automatically act like asses loudly criticizing whatever decision was made, and 33% will act like rational, thinking men, and make an educated opinion on the merit (or lack, thereof) of the decision made. Case in point, this so-called bailout. The 33% of rational, thinking people have mostly come to the conclusion that, at the very least, the bailout is a risky attempt at preventing full colapse of the money markets. Whether they believe it will work or not is another question, but at least they aren't knee-jerk reacting by throwing the "socialist" label all hilly-nilly around the room.

The situation absolutely sucks and the bailout certainly carries some seriously negative ramifications with it, but aside from the small crowd of idiots who are actually hoping the economy crashes, most people agree that the situation called for a drastic measure. The bailout was just one possible "drastic measure" considered. Compared to total nationalization of the banking system (another drastic measure considered) the bailout is certainly the lesser of evils and the less-socialistic option.

Originally posted by burdman30ott6


The situation absolutely sucks and the bailout certainly carries some seriously negative ramifications with it, but aside from the small crowd of idiots who are actually hoping the economy crashes, most people agree that the situation called for a drastic measure. The bailout was just one possible "drastic measure" considered. Compared to total nationalization of the banking system (another drastic measure considered) the bailout is certainly the lesser of evils and the less-socialistic option.

The small crowd of idiots as you like to say dont want to see a market crash but understands that this is what it will take for there to be change. The fact is there is a lot of things broken in the way we do business. An example as I listed above is no accountability, people step into these big executive jobs, take the millions, and fly away on their golden parachutes even though the run the company in the ground oh and guess what, we are even seeing this today. These guys at all these bailout recipients they lose their job yes but do you think they have to return any of the millions they swindled or have to give up their "retirement package"? On top of this the government is out there spending money like there is no tomorrow not only on bailouts but the welfare/warfare state and all of their other pet projects. Right now the sheeple are asleep but I promise you that a good crash that affects EVERYBODY in an obvious manor will wake people up and get them to start asking questions. The government DOES NOT WANT THIS they want to continue the quiet pillaging of the American people so look for more bailouts at the American taxpayers expense.



[edit on 18-9-2008 by mybigunit]

What it is if the goverment helps big company's we are socialist, But if the goverment helps the people then we are considered communist, interesting???? I'm kinda of waiting to see what happens next????

Originally posted by mybigunit
This is how a freemarket works

Which is exactly why we cannot have an unregulated free market. Thanks for making my point.

Im sorry but YOU dont know what your talking about. I see you know about business but your logic is flawed. If the taxpayers were going to be a backstop for all of these companies then their taxes need to be hiked plain and simple as that. We need to socialize the gains if we are going to socialize the losses which is exactly what you are advocating for. Once again you can put lipstick on a pig and word it anyway you want but it is socialism.

all of these companies? We have let quite a few fail. They have bailed out companies PURELY on situational premises. They never just bail a company out because they like them. If they bail them out, its because the situation warrants such actions.

The taxpayers will likely make money on AIG. It is not socialism, we are not nationalizing anything. We are giving them a 2 year loan, that is all. We are kicking out the greedy bastards that nearly ran the company into the ground and letting AIG give a shot at rebuilding. There is no grand plan for AIG, just them paying us back with interest for our action.

reply to post by grimreaper797


Does the government kick us the taxpayer a check for that money made?

reply to post by TruthWithin


Actually, its very possible for AIG to find buyers. Just because we have seen a bad week does not mean over the next 2 years that AIG won't be able to get rid of any of its assets. Sure it is a troubling week, and I don't expect AIG to sell anything for market value in the next week or two....that is kind of the reason we gave them the loan to begin with, so they wouldn't have to fire sale or go bankrupt.

They are a solvent company, with pleanty of assets, and now viable time to sell them as a result of this loan.

Not to mention you are acting as though if they don't sell the assets that our loan will suddenly disappear. That is why we have the warrants for 79.9% of their stock, so we can protect ourselves from losing the stock.

reply to post by mybigunit


No, you already spent it decades ago when our government started making unbalanced budgets. Having spending way over revenue. So no, you don't get a check, and in all honesty, you should have your taxes raised.

Originally posted by grimreaper797
reply to post by mybigunit

 

No, you already spent it decades ago when our government started making unbalanced budgets. Having spending way over revenue. So no, you don't get a check, and in all honesty, you should have your taxes raised.

Hehe in all honesty the income tax should be abolished for a tax on an individual is slavery. Corporate taxes should be raised however but not mine as an individual.

Now on topic Ok so I put MY tax money up and trust me I payed a lot this year to bail out AIG and yes this is a bailout because if the loan wasnt given (At interest not to mention) then they would have gone under and the government makes money or IF they make money I dont get a dime. Wow that sounds real capitalistic. Once again two different philosophies you have I have. You believe in socialized losses and privatized gains and I dont. I also dont buy into the trickle down theory which Im sure you probably do. I buy into Fordism and this is you take care of the middle class everyone benefits.

Socialism is very close to communism. Instead of giving you the same amount of pay as everyone else they slap you with high taxes (80% in Norway I think). The fact that the loan may not be entirely socialistic is true and a misconception, however all these bailouts and loans is what Socialism stands for... control of the economy. Really this may not look socialism but the intent is there. These bailouts will increase taxes because honestly the Fed can't afford it. The fact that we had to bail them out in the first place is bad, we shouldn't be dependent on these big corporations or things like this will happen. With every recession we go through the more socialistic America becomes, which is against everything America stands for, which is opportunity. Socialism is very pro large companies like Microsoft, McDonalds, you name it. If that happens here, where's the opportunity?
As for the comment about unregulated Free Market being as bad as Communism, that's funny Hong Kong is unregulated and I don't see them going through problems like this, don't they have one of the strongest economies in the world?